Cyprus clinches first €2 billion bail out installment

Cyprus has secured a €2 billion bailout from its Troika lenders. The money will be used for debt service and fiscal consolidation, and the second installment is due by the end of June.

Eurozone officials in Brussels signed off on the first 2 billion
euro tranche of the 10 billion euro bailout loan to Cyprus from the
troika of international creditors – the European Central Bank
(ECB), the International Monetary Fund (IMF) and the European
Commission (EC). The financial aid comes with around 2.5 percent
interest and is to be paid back over a 12-year period after a grace
period of a decade.

The restructuring of banks and the gradual lifting of
restrictions on capital movement were among the priorities for the
island’s aid programme, as a senior eurozone official told the
Cyprus Mail.

Depositors in the island’s biggest banks - Bank of Cyprus and
Laiki Bank will practically pay for the bailout. To collect the
money, Nicosia decided to tax of up to 60 percent on deposits of
over 100,000 euro in the two big banks.

Russia, one of the closest business partners with Cyprus, also
agreed to assist the troubled island. Moscow agreed to
cut the interest rate to 2.5 percent from 4.5 percent on a loan it
fixed in 2011. Maturity dates remain under discussion, even though
Cyprus's Foreign Minister Ioannis Kasoulides said Russia had agreed
to extend the terms of the loan. "Requests for an
extension were received, and we promised that the request would be
dealt with. If anyone wants to draw the conclusion from that
promise that a deal has already been signed, let them do so,"
Russian Deputy Finance Minister Sergei Storchak told journalists on
the sidelines of the annual congress of the European Bank for
Reconstruction and Development. Under the initial terms the money
should be paid back within four and a half years.

Greece will also be on the agenda of Monday's meeting, as the
Eurogroup ministers will decide on the next two installments to
Greece totalling 7.4 billion euro.

A week ago the International Monetary Fund said Greece is
"making progress" in overcoming "deep-seated
problems", adding that country still needed to find ways to
tackle its financial problems with structural reform rather than
draconian cuts. "Progress on fiscal adjustment has been
exceptional by any international comparison," the IMF said in
its regular report. But this primarily came as a result of slashing
jobs and salaries, which caused "unequal distribution of the
burden of adjustment," the IMF said.

Who’s next… Slovenia?

The Brussels meeting will take place amid continued concerns for
Slovenia which is seeking ways to avoid the need for a bailout
package.

At the end of April Moody's Investors Service cut the country's
credit rating to junk status, saying the banking system
was struggling and the national balance sheet was deteriorating. In
this situation privatizing Slovenia's largely state-owned banking
sector and creating a "bad bank" to take over non-performing loans
were the priority goals, according to Prime Minister Alenka
Bratusek, talking to The Economic Times.

Last week Slovenia's government tailored an austerity plan to
raise 540 million euro in new taxes to balance the budget without
international help. Under the game plan, the government is due to
partially privatize 15 state-run companies, such as Slovenia’s
second-largest bank Nova Kreditna Banka Maribor and Ljubljana
airport.

Though having jumped to 64 percent of the country’s GDP,
Slovenia’s debt remains at the lower end of that scale in the euro
area, Bratusek said.

German Finance Minister Wolfgang Schaeuble also believes
Slovenia can get by without an international bailout, provided it
introduces reforms.

"Slovenia can manage (without a bailout program). However it
must also carry out some painful restructuring (of its
economy)," Schaeuble told SWR 2 radio.